Many people are drawing too much from their pensions and severely underestimating their life expectancy, a report has warned.
AJ Bell found 44 per cent of people were withdrawing more than 10 per cent of their pension savings each year, with younger people even less cautious than older ones.
The provider surveyed 250 adults aged 55 plus who had flexibly accessed their pension pots since April 2015 and as a group had an average level of total savings of £118,000.
The provider found 57 per cent of people aged 55 to 59 were withdrawing more than 10 per cent of their fund each year, which reduced to 43 per cent in the 60 to 64 age bracket and 34 per cent for those aged 65 to 69.
The provider warned many savers could run out of their pension funds in as early as 12 years time given the rate at which they are pulling cash out of their retirement pots.
Tom Selby, senior analyst at AJ Bell, said: “It seems that people using the pension freedoms are playing a life expectancy guessing game and are often coming up short.
“The evidence from our research suggests many people might be severely underestimating how long their pension income will need to last for and as a result the levels of withdrawals they are choosing to make look questionably high in many cases.”
AJ Bell found younger people were more likely to underestimate how long their pension income will need to last.
More than half (51 per cent) of people in the 55 to 59 age bracket anticipated their pension income would need to last for 20 years or less, while 24 per cent thought it would need to last for 10 years or less.
According to the latest figures from the Office for National Statistics however, men in this age bracket are expected to live for another 24 to 27 years while women are expected to live for another 26 to 30 years.
AJ Bell's report found the vast majority of people had other income alongside their defined contribution pot, be it a state pension of defined benefit pension, or they are still in work.
Meanwhile, a mere two in five said they were using the withdrawals for day-to-day living, which pensions are designed for.
A quarter of people AJ Bell spoke to said they were using withdrawals to purchase luxury items such as holidays and cars.
About 47 per cent said they were taking ad hoc lump sums, compared with 35 per cent taking regular withdrawals.
This suggested people were using income from other sources to fund their day to day needs, leaving their pensions pots to continue to grow and dipping into them when needed, AJ Bell reported.
Mr Selby said: "The data does suggest that there is currently an engagement gap between people and their pensions and this is something that needs to be closely monitored as we move towards the third anniversary of the new rules next year.